Meet Our Team
Why Choose Humboldt Home Loans
Overview
Pre-Qualify
Apply Now
Calculators
My Account
Contact Us
Overview
Monthly Payment
Payment Schedule
Extra Payment
How Much Can I Afford
How Much Can I Borrow
Rent vs Own
Overview
Profile
Loan Status
Conforming & Jumbo Loans
FHA
USDA Guaranteed Rural Housing
VA Loans
Investment Property Loans
ARM Loans
Construction Loans
Sub Prime Loans
Market Analysis
Mortgage News
Upcoming Seminars
Shop Rate, Or Not?
Credit Basics
Forms
Links
HomeAbout UsLoan CenterProductsTip SheetsResources

COMMUNITY PROPERTY WITH
RIGHT OF SURVIVORSHIP . . .
A NEW FORM OF TAKING TITLE!

Updated:         June 5, 2018

There are several ways in which borrowers typically take title when purchasing property. The two most common ways for married couples to take title has been either as Community Property or Joint Tenancy.

Historically, spouses in California had been advised that in order to avoid the time and expense of probate proceedings, they should hold title to their property in joint tenancy. When so held in title, the property automatically passes to the surviving spouse without requiring the administration in probate. In addition to not having to pass through probate, joint tenancy's right of survivorship can not be altered by will.

Often, however, taking property in Joint Tenancy may not be the most desirable option for tax reasons. Under joint tenancy, each spouse is presumed to own one half of the property. Upon the death of one, the surviving spouse obtains a "step up in the basis" of only one-half of the value of the property as of the time of death.

As an example, assume the purchase of a property at $100,000. Each spouse is presumed to have a half interest or $50,000 of value. Years later, at the death of one spouse, the property is worth $200,000. Each spouse is still presumed to own a half interest or $100,000 each. Here, then, is the tax consequence . . . The deceased spouse's half value is "stepped up in basis" to the current market value of $100,000. The remaining spouse, should s/he decide to sell the property, could owe taxes on the $50,000 of value that escaped the "step up". (Recognize that present capital gain rules render this concern moot except for possibly higher sale value homes – over $750,000).

Community Property, as a form of ownership, allowed a surviving spouse to profit from a full "step up in basis" upon the death of their spouse. Thus, from a tax standpoint, an immediate sale of the property would result in no capital gain tax consequences.

Current law provides, for all title instruments created on or after July 1, 2001, spouses may choose to take title to property as "community property with right of survivorship". In essence, this new form of ownership provides the probate avoidance benefits of joint tenancy and the tax benefits of community property.

It is important to note that this new form of ownership requires the signature or initials of the parties on the face of the document or on some other document to demonstrate the clear intention of the parties to take the identified property as community property with right of survivorship.

The reason for this requirement for affirmatively requesting this new form of ownership stems from the often misunderstood concept known as the "community property presumption". Most commonly presume that property acquired by spouses during marriage and which is held in joint form, is community property. This presumption, however, applies only for purposes of division of property upon dissolution of marriage or legal separation. If one party dies, the language of how title is held in the deed is controlling, not the community property presumption. So, while people are often under the misperception that because they acquired a home during marriage, the home will be treated as community property with the appropriate tax advantages, this is simply not the case. The new law and new form of taking title is designed to clarify both buyer options and intent of ownership.

Those who currently hold title in another form of ownership may wish to consider changing to community property with right of survivorship. We recommend, as always, that tax and/or legal counsel be sought prior to any final decisions regarding change of title.

Web Page/Title New Form